You may have heard of the Thomson-Reuters Top 100 Most Innovative Companies. Or you may have heard of the Boston Consulting Group’s version. Forbes also publishes a similar list as does Fast Company. How relevant are these rankings to customers of HYPE, and members of the broader HYPE community?
My argument is twofold. They are nice to look at. They are interesting to peruse and to name-check. But there is a problem with them – my second point.
In each case they are really output and outcome measures of innovation or inventiveness. What we need are more “input” metrics, ways of measuring innovation competency that give companies insights into how they should develop their capabilities. I’ll touch on that below because I recently developed exactly that kind of Index.
In the case of Forbes, the main metric is the degree to which the stock market gives you a share-price premium because of your “innovative” track record.
Now that is kind of dubious - stock markets are notoriously crowd-like or even swarm-like. To attribute a collective wisdom to them is a stretch. We regularly make that category error, however, assuming that collective behaviour is now good behaviour.
Each of the league tables has related issues – Thomson-Reuters uses original patenting and patent citations as a key metric. But that begs the question of how well exploited a patent is and it assumes that the patent system is functioning well, despite the fact that we know it is in crisis. There is a big issue over the number and type of patents issued, reflected in the fact that the world’s biggest patenter IBM abandons 30 – 40% of its patents once the renewal fees are due.
The next issue is what these output and outcome tables tells us. If we know that Abbot Laboratories, say, has a good invention record and has strong IP protection systems in place, what lessons can we really draw about our own innovation needs?
A similar problem arises with output metrics like share price – so Apple scores highly when its share price is at a premium but do you know what it means for you?
The fact is a global league table of innovators is a dubious undertaking anyway, unless it yields a few important lessons for how to manage innovation.
That was the thinking behind the Blue Elastic Innovation Index. That Index is drawn up from an assessment of the many different ways that organisations innovate.
Take social communications as an example. We normally associate innovation with the technology that broadens or changes markets but one of the big drivers of change today is how people communicate.
Is it any less innovative of a company to rapidly adopt social communications and alter fundamentally how they relate to customers, than it is to make a marginal adaptation to a modular, technology platform? My argument would be that the former innovation, the social one, goes much deeper and has a more profound impact on culture.
That doesn’t invalidate the hard work of tech-innovators. But one huge problem for all innovation has long been “route to market”. The route to market is changing profoundly. In my experience – and please chip in because you are all at least equally as experienced – is that market factors still play a minority role in innovation projects.
If you are not innovating your route to market nor baking route to market into projects, then tech-innovation is going to hit a wall.
Take also the very nature of the product mix. Over the past five years there has been a strong drive towards modularization and therefore common technical platforms. That idea stems from what we’ve seen work so well in smartphones and software. A common platform allows a lot of niche customization. So having a platform and ecosystem strategy should count towards your innovation score, even if it is not patentable, and even if the stock market doesn’t yet “get it”.
Another main area I looked at is leadership. The late Steven Klepper at Carnegie Mellon often pointed out that companies fail because their high level decision-making is too beholden to competing power interests. Boards are often the problem. They create serious management issues for CEOs who are disabled when it comes to making important calls on the future of the company.
For that reason I counted having simple decision processes, particularly having founders still actively involved at the highest levels, as a key proxy for innovation capability.
Those are some of the metrics and proxies I think are relevant to what makes you innovative in today’s business environment. In all I used 35 criteria. Since then I have extended it to 65 – I am happy to share the work in more detail with the HYPE community – please get in touch. In the meantime the message to innovation managers, I think, is: Encourage and ally with any new activity in the company. Innovation is a pervasive activity.